Handbook of Game Theory and Industrial Organization, Volume II
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Handbook of Game Theory and Industrial Organization, Volume II

Applications

Edited by Luis C. Corchón and Marco A. Marini

This second volume of the Handbook includes original contribution by experts in the field. It provides up-to-date surveys of the most relevant applications of game theory to industrial organization. The book covers both classical as well as new IO topics such as mergers in markets with homogeneous and differentiated goods, leniency and coordinated effects in cartels and mergers, static and dynamic contests, consumer search and product safety, strategic delegation, platforms and network effects, auctions, environmental and resource economics, intellectual property, healthcare, corruption, experimental industrial organization and empirical models of R & D.
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Chapter 7: Endogenous timing in contests

Magnus Hoffmann and Grégoire Rota-Graziosi

Extract

In game theory, there is a fundamental distinction between simultaneous-move games and sequential-move games. While in the former no knowledge of the strategies chosen by other players is available, in the latter the strategy of at least one player is known by other players. This distinction leads to two different equilibrium concepts, which are typically applied to particular games: the Cournot-Nash equilibrium (NE) in a simultaneous-move game and the subgame perfect Nash equilibrium (SPE), the so-called “Stackelberg equilibrium” (SE), in a sequential-move game. It was von Stackelberg (1934) who first pointed out that, in sequential-move games, a firstmover advantage exists if two firms compete over quantities: each firm prefers to be the leader rather than the follower. Hence, as long as sequential-move games are based on the premise that the order of play (sequential) as well as the assignment of roles (leader and follower) is exogenously fixed, the question of the appropriateness of any particular order of moves emerges. Consequently, starting in the early 1990s, several attempts have been made to endogenize the order of moves in various games, with the seminal work of Hamilton and Slutsky (1990) as the most prominent.

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